For Twitter Founder Jack Dorsey,
These Days It's Hip to Be Square Inc.

By

Emily Maltby

Sept. 19, 2012 8:54 p.m. ET

Jack Dorsey is hoping his latest start-up, Square Inc., can shake up the credit-card industry the same way another company he co-founded, Twitter Inc., has shaken up social media.

ENLARGE

Jack Dorsey, Chairman of Twitter and CEO of Square, speaks at an event in Detroit on Sept. 12.
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Square lets merchants process credit or debit cards using their smartphones or tablets. The service is used by about two million merchants, the company says, most of them small businesses such as boutique retail shops. It is also being rolled out at U.S. Starbucks Corp. stores.

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Square closed its fourth round of funding this week, raising more than $200 million—and is now valued at more than $3.2 billion.

But the market for so-called mobile payments is crowded. On Wednesday, daily-deals site Groupon Inc. rolled out a payments service on the iPhone and iPod Touch for any merchant that runs a promotion through its site. PayPal Inc. and Intuit Inc. also have competing services that process credit cards on mobile devices.

The U.S. mobile-pay industry currently handles about $11 billion in gross payments volume, according to Rick Oglesby, an analyst at Aite Group LLC, a Boston financial research firm. That could reach $57 billion within three years, he estimates.

Square, based in San Francisco, provides its square-shaped card readers free to merchants, who then pay a 2.75% per-swipe fee. Smaller merchants have the option to pay a flat $275 monthly rate.

Last year, Square introduced a mobile app that retains consumers' payment information and a photo, allowing them pay by providing their names at the register. The cashier can look up the name, verify each customer by the photo and ring up a sale.

Square's revenue rose to roughly $42.5 million in 2011, from $2 million in 2010, according to PrivCo.com Inc., a New York research firm that provides data about private companies. Square declined to confirm revenue figures.

A St. Louis native and oldest son of an engineer and a coffee-shop owner, Mr. Dorsey attended the University of Missouri-Rolla before transferring to New York University. While in college, he wrote dispatch software for emergency vehicles and couriers. But he dropped out of NYU to move to San Francisco, initially so he could build software.

He says he came up with the idea for Square in 2009, and launched the company in his loft apartment. The technology hit the market the following year.

WSJ: Why do you think there is an attractive market for mobile-payments apps?

Mr. Dorsey: To sell a cappuccino at $3, and to pay 30 cents [in interchange fees, small-business owners] are either raising the cost of the cappuccino, or…putting up a sign saying, "Under $10, cash only." In 62 years, there's been no innovation in pricing. We completely rethought the model.

WSJ: How do you think entrepreneurs should validate a new technology?

Mr. Dorsey: We build it for ourselves, first. If we love using it on a daily basis, then there's probably some resonance there. And we start testing it with other people and if the resonance is validated, we scale it. It's really hard to quantify or qualify, but you know when you see it. You feel it.

WSJ: What's the hardest part of building a new company?

Mr. Dorsey: Every day is a roller coaster. Every day is an existential threat, questioning the entire business. You wake up and you are completely jazzed about what happens and then you read an article…about a potential competitor or a rumor, and it feels like—wait, what are we going to do?

WSJ: Do you write out your business plans?

Mr. Dorsey: We definitely have a lot of plans and we stick to them and hold ourselves accountable to them. But the way we funded ourselves is not [showing investors] a 40-page business plan. It was by asking, "Do you have a credit card? I'd like to show you the new product." Once they are hooked, say, "Here's how we will scale. Here's how we will build it."

WSJ: Is Square where you thought it would be at this point?

Mr. Dorsey: It's well ahead of where we thought it would be. We're not international. But we do have a goal this year…to see Square in many markets around the world.

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